Project Appraisal and Financing Project Report on INDIABULLS REALTECH LIMITED (IRL)5x270 MW Thermal Power Project at District Nasik, Maharashtra By Shafaquat Husain (11FN-093) Shaurya Vikram Singh (11FN-096) Shubhendu Gaur (11FN-102) (PAF-Section B)
TABLE OF CONTENTS PageI Introduction: Project Company 1 1.1 Company Profile 1 1.2 Company Background 1 1.3 Capital Structure and Share Holding Pattern 2II Project Details 3 2.1 Project Scope 3 2.2Location 4 2.3Land Requirement 5 2.4Implementation Schedule 5III Project Cost and Financing 7 3.1 Project Cost 7 3.2 Means of finance 8IV Key Financial Indicators 9 4.1 Debt to Service Coverage Ratio 9 4.2 Indicators 9 4.3 Sensitivity 9 4.4 Covenant Analysis 10V Risks and Mitigation 11VI Conclusion 14 ANNEXURE I
1. Project Company (SPV)1.1 Profile of the company Name Indiabulls Realtech Limited Industry Power Generation Corporate Office "Indiabulls House", 445-448, Udyog Vihar, Phase - V, Gurgaon - 122 001 Registered Office E-29, 1st Floor, Connaught Place, New Delhi -110001 Location of the Project Sinnar , Nasik district, Maharashtra Date of Incorporation January 03, 2007 Constitution Public Limited company1.2 Company BackgroundIndiabulls Realtech Limited (IRL) is a SPV promoted by Indiabulls Power Limited (IPL) todevelop, design, construct, finance, commission, operate and maintain a power plant withcapacity of 1350 MW (5x270) at Nasik district, Maharashtra. The project is being developedas part of the multi-product SEZ, being developed by Indiabulls Industrial InfrastructureLimited (IIIL), a joint venture of Maharashtra Industrial Development Corporation (MIDC) andIndiabulls Real Estate (IBREL). The plant is located inside the said 2500-acre multi product SEZ.The company’s shareholding arrangement in the Indiabulls’ group is explained under: INDIABULLS REAL ESTATE LIMITED 58.67% % INDIABULLS POWER LIMITED.. LN MITTAL: 8.80 % (FORMERLY KNOWN AS SOPHIA Farallon Capital: 14.67 % POWER CO. LTD) Others: 17.86 % (Implementing Amravati TPP (Phase – I, 1350 MW) 100% 100% %6% ote INDIABULLS CSEB BHAIYATHAN INDIABULLS REALTECH LTD POWER LTD (ICBPL) 1350 MW Coal Based Power 1320 MW Coal Based Power Project atNasik, Maharashtra Project at Bhaiyathan, ChhattisgarhIPL (formerly known as Sophia Power Company Limited) is a subsidiary of IBREL. The companywas incorporated in October 2007 for development of power projects of the group. IPL iscurrently developing 1350 MW coal based power plant at Amravati district, Maharashtra. Inaddition to this, IPL has promoted two separate wholly owned SPV’s for the purpose ofexecuting power project in Nasik (Maharashtra) and Bhaiyathan (Chhattisgarh).
1.3 Capital Structure and Shareholding PatternThe capital structure of IRL as on December 10, 2009 is as follows: Number of Shares Rs. CroresAuthorized capitalEquity share capital 20,000,000 20.00Issued, Subscribed and Paid upEquity share capital 1,049,500 1.05Share Premium 98.95The shareholding pattern of IRL is as followsCategory Number of shares % HoldingIndiabulls Power Limited. 10,49,500 100%Total 10,49,500 100%
2. Project Details2.1 Project Scope The salient features of the project and their significance for the success of the project are detailed in the subsequent section. Brief of the same is tabulated under: Project Name Indiabulls Realtech Ltd Plant Rated Capacity 5 units each of 270 MW. Total capacity 1350 MW Location Sinnar village in Nasik district of Maharashtra Distance from nearest railway station , Niphad Station - 30 km Distance from nearest airport: Mumbai- 230 km Distance from nearest seaport: Mumbai- 230 km Distance from SECL mines- 825 km Distance from WCL mines - 430 km Distance from MCL mines- 1025 km Land for the Project Entire land of 900 acres has been allotted by the developer of SEZ i.e. Indiabulls Industrial Infrastructure Limited Source of water Dedicated water supply from the outlet of the sewage treatment plant of Nasik Municpal Corpration (NMC) Technology Subcritical technology Primary Fuel Coal Coal Linkage LOA’s received from MCL, WCL and SECL for 5.23 MTPA of coal . The balance 0.71 MTPA is proposed to be procured from the open market. Power Off take The company has submitted a bid under Case-1 bidding for MSEDCL for supply of 950 MW net power under long term arrangement. Power Evacuation 400 kV Nasik substation and 400KV Babhaleswar Substation of Maharasatra State Electricity Transmission Corporation Limited ( MSETCL). Notice to Proceed November 2009 Target for COD 34 months from NTP-Unit 1 35 months from NTP-Unit 2 37 months from NTP-Unit 3 39 months from NTP-Unit 4 41 months from NTP-Unit 5
2.2 Location of the projectNasik, Maharashtra Location: Sinnar, Nasik District, Maharashtra The site has been selected in view of the availability of habitation free and even land. The water intake point is the outlet of the sewage treatment plant of Nasik Municipal Corporation, which is at a distance of 30 km from the project site. The project site lies on
Nasik-Bhuswal rail section and well connected to coal fields in the command area of SECLwhich are located about 825 km distance away. The site is also well connected to the coalblocks of MCL through Jharsuguda- Champa – Bilaspur – Wardha - Niphad railway route ofEasternCoast, Central and South Eastern Central Railways.Similarly WCL mines are connectedvia Bhalarshah – Chandrapur – Wardha – Niphad lines of Central Railways. For transmission ofgenerated power , the power plant can be connected to MSETCL’S 400kV substation atBabhaleswar , 80 km from the plant and 400 KV substation at Nasik , which is 22 KM from theplant.2.3 Land requirementThe land requirement can broadly be classified as Plant area, Ash Disposal area &otherfacilities such as water reservoir, township, administration office, roads, etc. etc. The totalland requirement for the project is estimated at 900 acres. The approximate break-up of landrequirements estimated for the project is given below:- Plant AreaAn area of about 228 acres will be required for installation of the project equipment. The landarea considered includes space for cooling towers, railway sidings, coal handling system withabout 30 days coal stockpile, fuel oil unloading and storage facility, 400 kV switchyard,mandatory space provision for future flue gas de-sulphurisation (FGD) plant, etc.- Ash Disposal AreaAn area of 210 acres shall be required for the Ash Pond for disposing Bottom ash and Fly ashin ash pond in the form of high concentration slurry. As per the notification of Ministry ofEnvironment & Forest (MOEF) dated 19th July 1999, the fly ash utilization has to be 100% from10th year of commissioning of the project. The area is adequate to store about 25 year’s ashgeneration considering 100% of bottom ash & unutilised fly ash.- Other AreaOther area includes 270 acres for green belt, township (42 acres) and other facilties (150acres) etc.2.4 Implementation ScheduleThe construction start date for the 1350 (5 x 270) MW power project is reckoned from theeffective date of award of the BTG contract for the project i.e. 24th Nov 2009. Unit I isestimated to be commissioned within a time period of 34 months , unit II in 35 months, unit IIIin 37 months, unit IV in 39 months and unit V in 41 months from Notice to Proceed.Implementation schedule is as follows:Milestone / Activity TimelineFinalization of Detailed Project Report (DPR) AchievedAward of Coal Linkage AchievedCompletion of Land Acquisition AchievedEnvironment Clearance by MoEF, GoI Mar, 2010Finalization of Power Sale Arrangements Feb , 2010Financial Closure Feb, 2010Issue of Notice to Proceed (NTP) Achieved. BTG contract awarded and other packages to be awarded by Jun 2010.Finalization of Project construction contracts Jun, 2010Commencement of Unit I Oct, 2012Commencement of Unit II Nov, 2012
Milestone / Activity TimelineCommencement of Unit III Jan, 2013Commencement of Unit IV Mar, 2013Commercial Operations Date May, 2013Implementation StrategyProject implementation is proposed to be undertaken through Engineering ProcurementConstruction Contract (EPC) for the Main Plant. The EPC contract for supply of Boiler , Turbineand Generator (BTG) has been awarded to Bharat Heavy Electricals Limited (BHEL) on 24November, 2009. IRL proposes to appoint Project Management Consultant for technicalmonitoring of the project implementation. IRL has already received a Letter of Support fromGovt. of Maharashtra on November 3, 2008 for providing administrative support fordevelopment of the Project.
3. Project Cost and Financing3.1 Project CostThe proposed project is envisaged to be commissioned at an estimated cost of around Rs.6,789 crores. The cost estimates are based on Detailed Project Report (DPR) prepared byEvonik.The project cost works out to Rs. 5.03 crore/MW.Components of project costThe components of project cost are presented hereunderComponents of Project Cost Rs. CroresLand & Site 55BTG 2,889Balance of Plant 1,107Civil and other works 1,024Cost of Transmission System 195Railway Infrastructure 144Township 60Raw water Piping 196Total Cost of Works 5,670Preliminary Pre-Operative and other expenses 325Contingency Provisions 112Margin Money for working capital 87Interest During Construction 595Total Project Cost 6,789Land & Site Development:The cost under this head represent the cost of 900 acres of land at approximately Rs. 6.11lakh/acre and other site development costs.BTG:The company issued a Letter of Award for supply, erection and commissioning of BTG mainplant to Bharat Heavy Electricals Limited (BHEL) on November 24, 2009. The detailedagreement with BHEL is in final stage of discussion and is expected to be signed shortly. Theabove cost is as per the LOA issued to BHEL. The company has already paid Rs. 221.13 croresas advance money to BHEL to commence construction work.BOP:The cost of Balance of Plant (electrical works including Switchyard, Control &Instrumentation, DG Sets etc and mechanical works) has been estimated at Rs. 1,107 croresby the DPR consultant. The major costs shall be towards Water treatment system, coolingsystem and ash handling facility etc.Civil and other works:The cost of Civil works would comprise of construction of Plant Building, Cooling waterPumphouse & Forebay, Cooling Tower, Raw water Reservoir, Storage tanks and clarifiedwater Pumphouse system, chimney and civil works required for Ash handling and coalhandling system along with other infrastructure such as housing colony, roads, boundary wall,paving etc. The cost of civil works is estimated at Rs. 1,024 crores by the DPR consultant.Railway Infrastructure, Township and Raw Water Piping:
Railway Infrastructure cost has been taken as Rs. 144 crores, while the cost for developmentof township and pipeline has been assumed as lump sum Rs 60 crores and Rs. 196 croresTransmission lines:The cost under this head includes the Rs.195 crore towards the power transmission line to thesubstations of MSEDCL. The company shall be laying approx. 100 km of transmission lines forconnecting to the nearest substations of MSETCL.Contingency:Adequate contingency provision of Rs. 112 crores has been made which is 2.0% of the totalEPC cost of the project.Preliminary & Pre-Operative, Establishment and other expenses:The cost under this head includes cost towards preliminary works & investigation studies,establishment charges, design, engineering, construction supervision, financing charges, feesand, consultancy charges, training expenses and cost of issuing of BGs to various coal-miningcompanies for issuance of LoA etc.Margin Money:The Margin on Working Capital is estimated @ 25% of the working capital requirement for thefirst full year of operation and the same has been included as a part of the project cost.Interest during Construction (IDC):IDC for the project has been provided @11.0% based on the capital phasing & theimplementation schedule of the loan. Details of the project cost is placed as Annexure VII.3.2 Means of FinanceThe total project cost is proposed to be financed by a debt-equity mix of 75:25. Theproposed means of financing is as followsMeans of Finance Rs. CroresDebt 5,092Equity 1,697Total 6,789IPL is currently implementing 3 coal based power projects with a total capacity of 4,020 MW.The following projects, with total envisaged equity requirement for these projects is as under:Particulars Rs. CroresAmravati (1350 MW) 1,722.00Nasik (1350 MW) – Proposed project 1,697.00Bhaiyathan (1320 MW) 1,699.00Total 5,118.00
4. Key Financial Indicators4.1 Debt Service CoverageThe debt service capability of the project is as follows (Rs. Crores)For year 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024endingPAT 410 430 445 459 473 486 499 511 522 533 403Depreciation 320 325 325 325 325 325 325 325 325 325 244Interest 577 534 478 423 368 313 258 202 147 92 45Total (A) 1,307 1,289 1,249 1,207 1,166 1,124 1,081 1,038 995 951 692Repayment 255 509 509 509 509 509 509 509 509 509 255Interest 577 534 478 423 368 313 258 202 147 92 45Total (B) 832 1,043 988 932 877 822 767 712 657 602 299DSCR (A/B) 1.57 1.24 1.26 1.29 1.33 1.37 1.41 1.46 1.52 1.58 2.31Avg. DSCR 1.43Min. DSCR 1.244.2 IndicatorsFinancial Indicator Estimated ValueMinimum DSCR 1.24Average DSCR 1.43Project IRR 14.11 %Levellised Tariff (25 years) Rs./unit 3.35The various financial indicators compares favorably for the project.4.3 SensitivityThe critical factors affecting the profitability projections are (i) sales levels, (ii) interest rateand (iii) growth rate and (iv) operating expenses. Accordingly, sensitivity analysis has beencarried out on some of the critical factors affecting the profitability projections. The factorsare as follows: (i) Decrease in PLF from 85% to 80% (ii) Escalation in YOY fuel cost from 6% to 7%. (iii) Decrease in merchant tariff by 5%.Particulars Project IRR Min DSCR Average DSCRBase Case 14.11% 1.24 1.43Decrease in PLF by 5% 13.98% 1.22 1.42Increase in Fuel cost 13.73% 1.23 1.41Decrease in Merchant Tariff by 5% 13.59% 1.21 1.39From the above, it is observed that the DSCR remains comfortable and the project cashflows are at satisfactory levels to service the debt under various adverse scenarios.
4.4 Covenant Analysis The following covenants have to be met by the company during the currency of term debt. DSCR of at least 1.20. TTL/TNWs ratio shall not exceed 3.00 FACR of at least 1.20For year ending Mar 31st 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024DSCR covenant 1.20 1.20 1.20 1.20 1.20 1.20 1.20 1.20 1.20 1.20 1.20DSCR estimated 1.57 1.24 1.26 1.29 1.33 1.37 1.41 1.46 1.52 1.58 2.31TTL/TNW ratio covenant 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00TTL/TNW estimated 2.20 1.65 1.24 0.94 0.70 0.51 0.36 0.23 0.13 0.04 0.00FACR covenant - 1.20 1.20 1.20 1.20 1.20 1.20 1.20 1.20 1.20 1.20FACR estimated - 1.21 1.28 1.36 1.47 1.62 1.83 2.15 2.71 3.95 5.08
5. Risks and MitigationAn analysis of major risks associated with the project, their sharing and mitigation /implications, is presented below.Risk Risk MitigationPROJECT DEVELOPMENT PHASESponsors Risk Indiabulls Group is a reputed group with strong presence in the real-estate and financial services segment in India. As on 30 September, 2009,the net worth of the Group was recorded at Rs 14,336 crores (since increased to Rs. 15,960 crores after IPO of IPL in October 2009). The group has sound project development & management experience. The group comprises of a number of companies who have attained leadership positions in their respective businesses.Obtaining IRL has made substantial progress towards obtaining variousApprovals/Clearance statutory/non statutory approvals/clearances. The Terms of Reference for environmental clearance has also been approved and Rapid EIA study has been submitted. The company expects to receive the final approval from MOEF shortly. The company has received the approval and sanction from the state body for the entire water requirement for the project. The project has also received clearance for chimney height, defence establishment and Open access from MSETCL. Further, a suitable pre-disbursement condition has been stipulated that IRL shall be obtaining all relevant and applicable statutory/non-statutory clearances/approvals required for the project.Funding Risk IRL is a 100% subsidiary of IPL.As on 30 September, 2009, IPL has a consolidated networth of Rs. 2,344.48 crores. During October 2009, IPL raised approximately Rs. 1,624 crores (incuding exercise of green shoe option) through its IPO, part of which has been utilized towards capital exependiture on Amravati, Bhaiyathan and Nasik projects . Further Indiabulls Group is a resourceful group and hence no problem is envisaged in bringing promoter’s contribution. Further, a sponsors undertaking has been stipulated such that the sponsors shall infuse 35% equity contribution upfront prior to seeking first disbursement and balance equity contribution in pro-rata as per the debt equity ratio.PROJECT CONSTRUCTION PHASELand Availability The land requirement for the project is estimated at 900 acres. Entire land is in possession of the company and is free from any encroachment and R&R issues.Project Cost Overrun The project is proposed to be executed on fixed price/time contract, which will include BTG, BOP, and majority of plant civil components except for smaller contracts for railway line, water pipeline, transmission system and township which the company proposes to implement through other contractors. Any increase in cost shall be the responsibility of the
Risk Risk Mitigation contractors. Nonetheless, a contingency provision of around Rs. 112 crores has been considered in the project cost. A suitable condition has been stipulated that any cost overrun/shortfall in the resources shall be met by the promoters.Time Overrun The company proposes to implement the project via various works contract on a fixed price fixed time basis. The company has already awarded the contract for BTG to BHEL. The contract for BOP and civil works are expected to be awarded shortly. The contracts shall have clauses for Penalties/Liquidated damages in case of a delay in project completion. Further suitable insurance will be taken by the company to cover for delays in project implementation.PROJECT OPERATION PHASEFuel Availability & Logistics The coal requirement for the project is proposed to be met mainly through long term coal linkages from SECL, WCL and MCL for 5.23 MTPA and balance 0.71 MTPA is proposed to be procured through market purchases The coal mines of SECL, WCL & MCL are well connected to the site and IRL needs to lay only a railway line of 30 km connecting the plant site to nearest railway station. The secondary fuel shall be sourced from nearby oil depots. In view of the above, no problem is envisaged in respect of fuel availability and transportation.Increase in Fuel Price As per the recent CERC notification for tariff dated September 30 2009, annual escalation rates for the domestic coal prices has been considered at 6.12%. For the purpose of estimates/ projections, the price of coal is assumed to increase by 6.12%. The DSCR for the project term loan is within comfortable limits in the above mentioned adverse scenario.Plant Performance Risk The EPC contract to provide for appropriate liquidated damages during the warranty period as also defect liability period.Operation & Maintenance The O&M of the plant to be carried out by both reputed O&MRisk contractor and experienced in-house team. In view of the above no problem is envisaged regarding O&M.Off take Risk IRL proposes to sell over 75% power on Long Term basis and the balance power is proposed to be sold on Merchant basis. The Levelized tariff as per CERC norms works out to Rs. 3.35/kWh for a period of 25 years which can be considered competitive. There is a huge demand supply mismatch in power sector with average energy deficit of 9.3% and peak deficit of 13.9%. In view of the above no off take risk is envisaged. Suitable covenants in the proposed terms have also been stipulated in this regard.Power Evacuation Risk IRL shall be laying a transmission line of approx 100 km length
Risk Risk Mitigation from the plant site till sub station of MSETCL.The company has secured open access approval from MSETCL.Force Majeure Risk IRL to take an appropriate insurance to cover both material damage and loss of profit.
6. ConclusionIRL is a SPV promoted by IPL to develop, design, construct, finance, commission, operate andmaintain a power plant with capacity of 1350 MW (5x 270) at Nasik district, Maharashtra. Theproject is being developed as part of the multi product SEZ, being developed by Indiabullsgroup, under a joint venture of MIDC and IBREL. IPL is also developing a thermal powerproject of 1350 MW size at Amravati district, Maharashtra and 1320 MW CSEB BhaiyathanPower project at Bhaiyathan in Surguja District, Chhattisgarh.India suffers from acute shortage of power. As per the 17th Electric Power Survey carried outby the Central Electricity Authority (CEA) it is expected that power requirement wouldincrease at a rate of over 7% till 2021. The western region of India is witnessing shortage inenergy and peak demand deficits in the range of 15% - 16% and 14% - 25% respectively. Thepower demand scenario in western sector indicates that the power demand will continue toexceed the available and planned generation capacity in future. The Indian governmentthrough the Electricity Act (EA), 2003, has brought in several reforms in the sector andallowed more participation from private players in the power sector.The present project benefits from experienced promoters, strategic location at Sinnar districtwhich offers easy accessibility, availability of water, and fuel supply. The company is alreadyin possession of encroachment and R&R free entire land of 900 acres required for the project.IRL has received water clearance from Nasik Municipal Corporation. The EPC contract forBTG has been awarded to BHEL. The company is currently in discussion with variouscontractors for the other packages.The company has received allocation of coal from standing linkage committee ofGovernment of India for 5.23 MTPA out of the total requirement of 5.94 MTPA . The companyhas received LOA from MCL , WCL and SECL mines. The deficit of approximately 0.71 MTPA isproposed to be purchased from open market.The company has bidded under case-1 bidding for MSEDCL for supply of 950 MW net powerunder long term arrangement. It plans to sell balance (23.5% of generated power) onmerchant basis.The project has sound financials and the project IRR works out to 14.11%. The debt servicingcapability of the project is estimated at comfortable levels under the various sensitizedscenarios. The project emerges with strong technical, economic and financial fundamentals.In light of the above the investment in the project can be considered a fair banking risk.